Other Voices

Kevin Keller: A fiduciary standard is good, old-fashioned common sense

Oct 9, 2011 @ 12:01 am

By Kevin R. Keller

Nearly five years ago, the Certified Financial Planner Board of Standards Inc. became a pioneer in the financial services industry by doing something so simple and obvious that it is hard to see why other organizations didn't do it first.

So what was this trailblazing act that not only provides investor protection but helps financial services professionals' own businesses? We put a marker down and said that CFP professionals — when providing financial planning services — have to adhere to a fiduciary standard or, more plainly, put their clients' interests first.

It should be noted that the CFP Board's embrace of the fiduciary standard in 2007 wasn't greeted with fanfare. Coming well before the financial crisis and Bernard Madoff's becoming a household name, we adopted a standard that industry organizations such as the Financial Industry Regulatory Authority Inc. and the Securities Industry and Financial Markets Association opposed.


Fortunately, these and many other industry organizations have come to realize that the fiduciary standard isn't only good for investors but is needed to restore confidence in our capital markets.

When the CFP Board included a fiduciary standard in its Standards of Professional Conduct, there was concern that brokerage and insurance business models were going to be disrupted and compensation structures would suffer. We even had one insurance company force their CFP professionals to relinquish the right to use the CFP mark.

As most know, the CFP Board is business model and compensation-neutral. Whether you work in the brokerage, investment advisory, insurance or any other segment of the financial services industry, the requirement to put clients' interests first stays the same.

The CFP Board has developed guidance for its CFP professionals to operate with fiduciary accountability, regardless of their business model or their form of compensation. In doing so, the CFP Board has paved the way for the task before the Securities and Exchange Commission in its rule making: to apply the fiduciary standard to brokerage business models.

We have CFP professionals who operate successfully in just about every financial services business model. In fact, it isn't a stretch to say that the fiduciary standard requirement actually has helped their business by providing clients with a level of protection that covers the entire financial planning process, including implementation, that puts them at ease and creates a more trusting relationship between client and CFP professional.

The application of the fiduciary standard of care didn't drive CFP professionals away; just the opposite happened.

Since we adopted the fiduciary standard as a requirement to become a CFP professional, we have seen the number of financial professionals earning the certification continue to increase, growing by nearly 13% (there were 56,511 CFP professionals in 2007 and 63,601 as of Sept. 30). Anecdotally, I can also say that the majority of people who once were opposed to our adoption of a fiduciary standard are now full-throated supporters.

Our 2011 survey of CFP professionals bears this out, with 75% of respondents saying that CFP certification has contributed directly to their success and 86% saying that they are very satisfied with their career choice. Couple these data points with 88% of respondents' saying that they agree that all financial professionals should adhere to a fiduciary standard, and you have a pretty compelling case that the fiduciary standard is a benefit to business, not an impediment.


Despite this clear and persuasive evidence that a fiduciary standard can be applied across business and compensation models, a minority of groups, mostly representing insurance companies and some members of Congress, still don't see the value of requiring a strong, uniform “client first” fiduciary standard for all financial professionals who provide personalized retail investment advice. This vocal minority shouldn't stop the SEC from moving forward with this important consumer protection reform authorized by Congress.

Unfortunately, some are also misleading the public by saying that a fiduciary standard would prevent the delivery of financial services to middle-American Main Street investors.

That isn't our experience. CFP professionals can be found in small towns and big cities alike, all delivering personal financial planning services at a fiduciary standard.

The simple fact is that it is long past time for the SEC to move forward with rule making that would establish a uniform fiduciary standard of conduct.

Under the Dodd-Frank law, Congress gave the SEC authority to enact such a rule once a study on the issue was complete. That study, which recommended moving forward with establishing a uniform standard, was published nearly 10 months ago, and we still don't have a proposed rule.

We understand that the SEC is under significant pressure from some in Congress not to proceed until it has quantified the benefits of a fiduciary standard and shown that the benefits outweigh the costs of imposing the standard. Although we agree that an appropriate cost-benefit analysis should accompany any rule making, this can and should be done through the rule-making process.

We think that the process will reveal the benefits of the fiduciary standard, just as it did when the CFP Board adopted the standard in 2007. We also think that imposing a uniform fiduciary standard on all who provide personalized investment advice will help restore much- needed investor confidence in our capital markets.

Ethically speaking, putting a client first is the right thing to do. But for those who are really worried about the bottom line, as we have seen here at the CFP Board, it also makes the most business sense.

Clients want to work with people and companies who care about them first and their own balance sheets second. With all this in mind, we ask all financial organizations to join us in urging the SEC to act now to make this common-sense reform a reality for our nation's investors.

Kevin R. Keller is chief executive of the CFP Board.


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